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How much should I hold? Reserve Adequacy in Emerging Markets and Small Islands

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Author Info

  • Nkunde Mwase

Abstract

This paper investigates the drivers of reserves in emerging markets (EMs) and small island (SIs) and develops an operational metric for estimating reserves in SIs taking into account their unique characteristics. It uses quantile regression techniques to allow the estimated factors driving reserves holdings to vary along the reserves’ holding distribution and tests for equality among the slope coefficients of the various quantile regressions and the overall models. F-tests comparing the inter-quantile differences could not reject the null that the models for the different quantiles of SIs reserve distribution were similar but this was rejected for EMs distribution suggesting that models explaining drivers of reserve holdings should take into account the country’s reserve holdings. Empirical analysis suggests that the metric performs better than existing metrics in reducing crisis probabilities in SIs.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/205.

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Length: 44
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/205

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Related research

Keywords: Emerging markets; Economic models; Reserves accumulation; Reserves adequacy; Small states;

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References

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  1. Woon Gyu Choi & Sunil Sharma & Maria Str�mqvist, 2009. "Net Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 516-540, August.
  2. Atish R. Ghosh & Jonathan David Ostry & Charalambos G. Tsangarides, 2012. "Shifting Motives: Explaining the Buildup in Official Reserves in Emerging Markets since the 1980s," IMF Working Papers 12/34, International Monetary Fund.
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